Thrifty Loans

The following is a 10 point plan to working out which type of borrowing (if any) is most suited to your needs.

1. Must you borrow? Ask yourself if you do really need to borrow the money. Is there any way you could save up for a particular item, then gain interest on your savings rather then pay interest on an amount borrowed?
2. Only borrow what is really required. Resist the temptation to ‘over’ borrow e.g. if you need a loan for £5,000, do not be tempted to make it £5,500 using the ‘spare’ for bits and bobs. Remember every penny borrowed must be repaid with interest. Choose as short a repayment period as you can afford.
3. Do not put your home on the line. This is often what they term as ‘secured loans’. The ‘security’ is your house which could disappear if you do not keep up with repayments.
4. Some people in debt find themselves there pure and simply because they spend more than they earn. An easy solution is to combine all existing debts into one consolidation loan. A much better idea would be to rethink lifestyle and spending habits and to try and not get into debt. Research has shown that 5 out of 6 people who take out consolidation loans continue to add new debt onto this type of loan.
5. Save your feet from trekking through lots of different high street lenders and go onto the internet. It is worthwhile visiting a comparison site which can show you a wide variety of offers – some are exclusively for internet applicants.
6. Do not choose a loan solely on the lender’s APR. Obtain the total amount repayable figure. This will tell you the loan amount plus all credit charges, giving you a much clearer picture and this is the figure you should compare between firms.
7. You need to choose between a fixed rate loan and a variable rate. A word of caution with the variable rate – always remember that this figure can go UP as well as down. Depending on your ability to handle your finances, you may be better off with a fixed rate one, that way you know exactly how much you will repay every single month.
8. More than 8 out of 10 lenders base their repayment rates based on borrowers credit histories and personal profiles. If yours is not that great it may be worth seeking out the few lenders who still apply the same rate to all borrowers.
9. Payment protection insurance. There are many arguments for and against this. Experience and recent articles have shown that there are many exclusions, and people who would expect their circumstances to be covered have been left disappointed. If this is something you wish to undertake then most definitely read every bit of small print before agreeing to sign anything.
10. At the outset, check if there should be any penalties or payments required should you choose to repay your loan earlier than originally agreed. On average 7 out of 10 loans are paid off early- the majority of these replaced by new loans.